ITAT Deletes Section Addition for Demonetisation Cash Deposits Explained Through Cash Flow Statement

CSV Renraj (HUF) Vs ITO (ITAT Bangalore)

In CSV Renraj (HUF) Vs ITO, the ITAT Bangalore allowed the appeal of the assessee and deleted an addition of Rs.9,40,000 made under Section 69A of the Income-tax Act, 1961 in relation to cash deposits during the demonetisation period.

The appeal was filed against the order dated 30.11.2025 passed by the Commissioner of Income Tax (Appeals), NFAC, for Assessment Year 2017-18, which had confirmed the addition under Section 69A. The assessee also filed a petition seeking condonation of delay of 28 days in filing the appeal before the Tribunal. The assessee explained that the delay occurred because the appellate order had been communicated electronically through the Income Tax portal and was not immediately noticed. The assessee stated that there was a bona fide belief that such orders would also be physically served, as was the earlier practice. It was submitted that the delay was neither intentional nor deliberate but occurred due to a genuine misunderstanding regarding electronic communication.

The Departmental Representative did not raise any serious objection to condonation considering the length of delay. The Tribunal observed that the delay of 28 days was neither inordinate nor attributable to negligence or mala fide intention. Holding that the explanation furnished was reasonable and supported by bona fide circumstances, the Tribunal adopted a justice-oriented approach and condoned the delay, admitting the appeal for adjudication on merits.

On merits, the assessee challenged the addition of Rs.9,40,000 made under Section 69A on account of alleged unexplained cash deposits during the demonetisation period. The assessee, a Hindu Undivided Family, was engaged in small-scale lending activities to agriculturists and petty traders. Cash deposits had been made in various bank accounts during the relevant previous year. The Assessing Officer treated the deposits as unexplained money under Section 69A on the ground that the assessee failed to produce adequate supporting evidence such as books of accounts, loan registers, and borrower confirmations. The CIT(A) had confirmed the addition.

Before the Tribunal, the assessee submitted that the cash deposits were sourced from interest income from lending activities, recovery of loans from borrowers, opening cash balance, and accumulated funds. A cash flow statement was furnished explaining the availability of cash prior to the deposits. The assessee also relied on banking records to corroborate the movement of funds. It was argued that the assessee was a small-scale lender and formal books were not strictly maintained in the manner expected in organised business setups.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This appeal is filed by the assessee against the order dated 30.11.2025 passed by the learned Commissioner of Income Tax (Appeals), NFAC, for Assessment Year 2017-18 confirming addition of T9,40,000 under section 69A of the Income-tax Act, 1961.

2. The appeal is accompanied by a petition seeking condonation of delay of 28 days in filing the appeal before this Tribunal. It is stated by the assessee that the delay occurred due to the fact that the appellate order was communicated electronically through the Income Tax portal and was not immediately noticed by the assessee, who was under a bona fide belief that such orders would also be served physically as in earlier practice. The assessee submits that the delay is neither intentional nor deliberate and occurred due to a genuine misunderstanding regarding electronic communication of orders. Weekly the limited or played for the current donation of the delay in filing the appeal by the assessee.

3. On the other hand, the learned DR considering the length of delay didn’t not raise any serious objection if the delay is condoned.

4. We have considered the explanation and find that the delay of 28 days is neither inordinate nor attributable to negligence or mala fide intention. The explanation furnished is reasonable and supported by bona fide circumstances. In view of the settled principle that justice-oriented approach should be adopted in condonation matters, we are satisfied that sufficient cause has been shown. Accordingly, the delay of 28 days in filing the appeal is condoned and the appeal is admitted for adjudication on merits.

4.1 The assessee has challenged the confirmation of addition of T9,40,000 made under section 69A of the Act on account of alleged unexplained cash deposits during the demonetisation period.

4.2 The assessee is a Hindu Undivided Family engaged in small-scale lending activities to agriculturists and petty traders. Cash deposits were made in various bank accounts during the relevant previous year. The Assessing Officer treated the deposits as unexplained money under section 69A of the Act on the ground that the assessee failed to produce adequate supporting evidence such as books of accounts, loan registers, and borrower confirmations. The CIT(A) confirmed the addition.

5. Aggrieved by the order of learning CIT-A, the assessee is in appeal before us.

6. The Id. AR before us assessee submitted that the cash deposits were sourced from interest income from lending activities, recovery of loans from borrowers, opening cash balance and accumulated funds. A cash flow statement was furnished explaining availability of cash prior to deposits. The banking records corroborate the movement of funds. The assessee is a small-scale lender, and formal books were not strictly maintained in the manner expected in organised business setups.

7. On the other hand, the DR submitted that there were not filed sufficient documents before the authorities below justifying the source of cash deposits in the bank during the demonetisation period. The Id. DR vehemently supported the order of the authorities below.

8. We have carefully considered the rival submissions and perused the materials on record. It is not in dispute that cash deposits were made in the bank accounts of the assessee. The issue is whether the assessee has been able to satisfactorily explain the source of such deposits. The assessee has furnished a cash flow statement explaining availability of funds through interest income, loan recoveries, and opening balance. The bank statements corroborate the pattern of deposits and withdrawals. It is also relevant to note that the assessee is engaged in small-scale lending activities, where transactions are often informal and documentation may not always be maintained in a structured manner. The explanation furnished by the assessee, when viewed in totality along with the cash flow statement and banking records, appears to be plausible and reasonably supported by material on record. The lower authorities have not brought any positive material to disprove the availability of cash or to establish that the deposits represent income from undisclosed sources. The addition has been made primarily on the ground of absence of detailed documentary evidence.

8.1 It is well-settled that an addition under section 69A of the Act cannot be sustained merely on suspicion when a plausible explanation supported by available material is furnished. In view of the above discussion, we hold that the assessee has satisfactorily explained the source of cash deposits of T9,40,000. Accordingly, the addition made under section 69A of the Act is deleted. The ground of appeal of the assessee is hereby allowed.

9. In the result, the appeal of the assessee is allowed.

Order pronounced in court on 8^th day of May, 2026